Why is Easy Business Math So Hard?

September 3, 2022

Years ago, I was a new-ish employee at a startup that was both (a) 100% set on becoming a massive enterprise software company, and (b) celebrating closing a $20k annual contract with one of the biggest companies in the world.

“But wait…” I said, nervously. “How many companies out there actually need our product?”

5,000? Maybe 2,000? A lot. And either way, we just closed one of the biggest ones!

“Right, but if one of the biggest companies that will ever need our product is paying $20k a year for it, that’s a maximum of $100m in annual revenue for our business, assuming there are really 5,000 companies that need us.”

Well, it might be more than that. Plus, we’ll upsell them!

“Upsell them to what?”

More users!

“How many more users? What do additional user accounts cost? How many people at this giant company need another user account?”

The conversation broke into a variety of directions — everyone had a different, qualitative take on all of these things — and it became clear to me that we had absolutely no idea what we needed a customer like our recent win to pay in order to actually, logically declare the whole operation a success.

And nobody really felt like that was a reasonable problem to solve.

Math is easy, but context is hard

These were not dumb people, or people who were literally bad at math. In fact, they were very smart, thoughtful people who were quite good at all kinds of math, whereas I barely passed calculus (or trigonometry, let’s be real). But that didn’t matter, because the problem wasn’t a traditional math problem.

It was a context problem.

None of the individual math questions I had were very difficult. The problem is that there were a lot of them, they were all connected to each other in various ways, and those ways were all in flux. You could assume there were 5000 potential customers, but that might be wrong, and if there were actually only 2000, that would affect a bunch of other math problems needed to figure out how much the average customer needed to pay you to build a $100 million dollar company. Or a $50 million dollar company. Or a billion dollar company! And what if we had two products? Three products? One-off services in addition to recurring subscriptions?

In other words, it wasn’t just that a ton of different numbers might have to change. We could handle that. Instead, it was that the logic connecting those numbers — the context, basically — might have to change, and there was just no good way to keep all of that organized in our heads, or on paper.

We focus on what our tools do, and they don’t really do context

“When all you have is a hammer, everything looks like a nail.”

In business, context is often experienced as a source of frustration instead of a problem to be solved because the business tools we’ve been conditioned to think with are all pretty horrible at context. Just like bad, ad-hoc PowerPoint enrages people or puts them to sleep but is still somehow the norm, bad, ad-hoc spreadsheets continue to be how we try to project unknown futures or win arguments.

Just doing some quick business problem solving, don't mind us.

But… spreadsheets are terrible for this. Instead of making lots of simple calculations easy to manage, change, and understand, they bury them inside a complex formula language and an arbitrary grid of coordinates. Because spreadsheets are fundamentally about cells and values, and not about relationships, you can put anything you want into any field at any time no matter how impossible or nonsensical it is. A spreadsheet can tell you that a value is missing, or outside some range you define, but it’s never going to be able to tell you that something doesn’t make any logical sense.

That logical sense… is context! It’s exactly what we needed when we were trying to figure out whether to celebrate or mourn a $20k contract, as well as exactly what we needed back when we were figuring out what user accounts should do, how much they should cost, and how many people we should hire to sell them.

In business, context is more important than calculations

I’ve been talking to people about their spreadsheets for a while now. One thing I’ve noticed is that people talk about them the same way they talk about their driving. Everyone thinks they are above average. But while most people seem to think they’re pretty good with spreadsheets, they also had a long, angry list of problems they have with ones made by someone else.

Given my experiences, this isn’t really that surprising. Even if you’re able to represent a massive, complex scenario with your spreadsheet (totally possible!), all of that context and understanding of the situation the spreadsheet represents — it’s in your head! Or at least it’s in your head until things get too big, or you don’t look at it for a while. But the sheet itself is just a horrendous way to discuss, debate, or convey the context of things to/with anyone else. This is fine if you’re looking at the exact same P&L statement you’ve looked at every quarter for five years (i.e., what spreadsheets are for, and where they’re fantastic) and not fine at all if you’re trying to figure out a random, specific business decision you’ve never had to make before. 

In fact, when we actually need to figure out context, more often than not I’ve found myself having a conversation over something completely different — a whiteboard. A whiteboard doesn’t do any math at all, but it’s a much easier way to very quickly suss out relationships and logic. People will scribble boxes, draw arrows, violently circle and erase things, and do all sorts of things that reference math, but don’t actually do any of it.

Then we run off and try to bake that context into a spreadsheet, so we can never look at it ever again.

The cost of context-free thinking

I’ve worked for a lot of different startups at this point, and none of them have been able to completely avoid this kind of context-free thinking. And the costs of that have been pretty enormous, encompassing a variety of dumpster fires like:

  • wildly insufficient investment at key points of the business
  • lack of accountability for impossible promises or goals (and the resulting credibility loss)
  • no shared understanding of costs (in time, money, or morale)
  • nonsensical lead-gen expectations for ideas like social media campaigns or cold calling
  • unsustainable practices (rate of hiring, discounting, sales without user adoption)

… and a bunch of other terrible things that either weren’t in anyone’s spreadsheet, or if they were, had too many assumptions buried in too many formulas. And I don’t blame the spreadsheet paradigm itself (it’s not perfect, but spreadsheets are pretty amazing) as much as the culture that exists from building so much of our strategic thinking around the wrong tool for the job.

Tools matter. They affect our thinking! If we only dug holes with dynamite, we’d have a very different culture across a variety of disciplines. Construction, landscaping, telecommunications and other fields would all have a very different set of expectations, procedures, and required skills. Someone would surely be selling tiny little explosives to my Mom so she could get her garden ready for spring, and they would certainly argue that there was no need for a fundamentally different solution, because “everyone uses dynamite already”. But until we figured out the idea of a shovel — a demonstrably weaker, “less capable” solution for digging holes – we’d never really unlock so much of what we’re able to do today.

Business can be kind of stupid sometimes, and not stupid in a way you necessarily fix with high-powered answers like mass automation and machine learning. Sometimes, it’s just stupid because people — you and I — need to have a better understanding of how things work (and don’t work), and that’s something we’re going to have to figure out on our own… with the right tools, of course. 


For what it’s worth, I’m having a blast working on a new generation of tools designed to help people do exactly that.